A rebound year for the dairy industry? Economists, milk producers 'cautiously optimistic'

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Widely recognized as a sector of agriculture that’s seen tough years recently, reports indicate that the dairy industry is set for much improved times in 2014.

Next year, dairymen are expected to see what some experts call a “rare” combination of events — more milk production and yet higher milk prices, so says a recent U.S. Department of Agriculture report.

Add to that much more affordable livestock feed prices, and milk producers should be in better shape than in past years, economists say.

“It’s looking to be a better year all around,” said Katelyn McCullock, dairy economist for the Livestock Marketing Information Center in Denver.

USDA numbers and market analysis showed last month that corn prices plunged 39 percent during 2013 — its biggest annual drop in price since at least 1960 — as grain production this past year climbed to records worldwide.

That’s good news for dairymen.

After buying $8-per-bushel corn to feed their livestock during recent drought-sticken years, corn prices fell below $5 per bushel toward the end of 2013.

More affordable feed is expected to push some dairymen to increase the size of their herds. In a USDA report, chairman of the World Agricultural Outlook Board Gerald Bange said milk production in 2014 is expected to increase to 205.3 billion pounds — up by almost 2 percent from 2013 — and he attributed much of that gain to lower feed costs and dairymen adding cows.

And while more milk production often leads to lower milk prices, Bange and others say that’s not expected to be the case in 2014, as dairy products continue seeing high demand. Exports of butter fat are expected to stay strong in 2014, as is the domestic demand for non-fat dry milk.

The average all milk price for 2014 is expected to be at $20.10 per hundredweight, up from $19.95 in 2013.

While a 2 percent increase in milk production and a15-cent increase in price may not sound like much, it means a lot to milk producers, many of whom have seen difficult times in recent years.

Typically, livestock feed accounts for about 40 to 50 percent of a dairy’s operating expenses, and, from 2007 to about 2012, the price of corn — a major component of livestock feed rations — doubled because of increased demand and drought. The price of hay also doubled in recent years.

During that time, though, the price dairymen received for their milk didn’t see such increases. The average price dairymen received for their milk in Colorado in 2007 was $19.30 per hundredweight, according to the National Agricultural Statistics Service’s Colorado office. In 2012, the average price Colorado dairymen received for milk was actually lower, at $18.60 per hundredweight.

Close in dairymen’s minds is 2009, which was dubbed by many as the “Great Dairy Recession” — when milk prices collapsed with demand in a weakened economy and a healthy export market turned sour while the cost of feed increased.

Any kind of turnaround in 2014 would be welcomed by milk producers, they say.

“You have to be optimistic to be in this business in the first place,” said a laughing Chris Kraft, who has dairy operations in northeast Colorado, and also sits on boards for Dairy Farmers of America and Western Dairy Association. “But I’m definitely more optimistic heading into this year than I have been in the past. I should say I’m ‘cautiously optimistic,’ because it doesn’t take much — drought, etc. — to change everything.” ❖